Dear Momentum Options Subscriber,

Special Notice: I will be providing normal updates through Wednesday. The market closes early on Wednesday, so I may be an hour early or so with the Mid-Market Update. Christmas is on Thursday, and the market is closed all day.

A full day on Friday is scheduled, but Wall Street will be a ghost town. I will provide trade updates on Friday with commentary in the Pre-Market Update, but there will probably not be a Mid-Market Update.

I will be working, of course, and watching the positions, but, hopefully, the bulls can keep their momentum and push new highs into 2015. If not and the bears return, I will provide lengthier updates along with possible Trade Alerts.

The week of December option expiration turned out to be one of the most volatile and exciting of the year. The bulls and bears were tossing triple-digit blows on the major indexes with dizzying 2%-3% intraday swings.

The flush of the weaker hands I had warned about coming into the month played out like a fiddle but took a week longer than I expected. The talking heads were fretting over continued downside risk and wild price movements despite the V-shaped recovery into Friday’s close.

I mentioned coming into last week that a bottom could be forming. The game plan is unfolding like a championship blueprint for higher highs, but the bears have shown some bite. Perhaps their hibernation started last Wednesday following a classic “double bottom” signal across the board.

The Dow gained 26 points, or 0.2%, to close at 17,804 on Friday. The blue-chips traded into near-term resistance at 17,800-17,900 after reaching a peak of 17,874. Last week’s low touched 17,067 and 17,069, which was the green light that support at 17,000 would hold. Last week’s drop below the 50-day moving average led to a quick test of the 100-day moving average, but the bounce off of support was solid. The 52-week and all-time high for the Dow is at 17,991, and a pop past 17,900 should get 18,000 in play. I talked about “fluff” up to 18,200-18,350 on an overshoot coming into December. Short-term support will try to hold at 17,600, with 17,400-17,350 serving as backup.

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The S&P 500 added 9 points, or 0.5%, to end at 2,070. The index nearly posted its 50th record high following a push to 2,077 and resistance at 2,075. I warned of risk to 1,975 coming into last week, and the bears reached 1,972 on Tuesday. 1,973 was Wednesday’s low ahead of the Fed’s minutes. The nearly 100-point, or 5%, recovery from the bottom also tested the 50-day and 100-day moving averages. My year-end target of 2,100 from February is a little over 1% away from triggering. The recent all-time from Dec. 5 is 2,079. Support is at 2,050-2,025 on a pullback.

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The Nasdaq advanced 17 points, or 0.4%, to finish at 4,765. Tech tested its 50-day and 100-day moving averages following the freefall to 4,547 and 4,550 before Friday’s high of 4,782. The bulls nearly held 4,775 into the close, but they at least held 4,750, as all I wanted to see was a 3-point follow-through win to end the week. Resistance is at 4,800, with the 52-week and 14-year high at 4,810 reached at the end of November. The bulls fell short of dancing into my February year-end target zone of 4,800-5,000 (again) for the Nasdaq, but they came close. The party should be back on as long as 4,725-4,700 holds this week, and especially today, on any weakness. There is additional support at 4,650, and a close below this level would signal continued volatility.

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The Russell 2000 jumped nearly 4 points, or 0.3%, to settle at 1,196. The small-caps gave one of the best clues that a market bottom might form quickly following a back test to 1,140 to start the week, with only a one-point loss on Tuesday’s overall market slide. The lows of 1,138 and 1,134 were a little worrisome, but my downside target of 1,140-1,135 held steady. While there was further risk to 1,125, I mentioned earlier this month not to get nervous on any selloff unless 1,100 was cracked. This is the lower level of the 10-year uptrend line I covered on Dec. 8. The rebound back above multiple layers of support and recovery above 1,180 was also a bullish signal that a run to 1,200 could come. Friday’s high came within spitting distance of 1,199. The 52-week and all-time high is 1,213.

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The S&P Volatility Index ($VIX, 16.49, down 0.32) has been my best friend for years, although it is often bashed by the slick-talking pros. The VIX tested 15 at the start of December, and I warned that a close above this level could lead to a test to 17.50 and then 20-25. The bears pushed 20 the prior week and 24.93, 25.20 and 24.61 to start last week and into the Fed minutes. The VIX is still in a “danger zone,” as the aforementioned levels are still in play on another pop past 17.50. The bulls need to get back below 15 this week and 13.50 by year-end to ensure smooth sailing into January.

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The bears started last week off with a Monday win and tested further support levels following a failed bullish breakout on the open. The slick-talking pros called it a “dead cat” bounce and were worried over oil’s drop to double-nickels.

Tuesday’s was one of the wildest sessions of the week, with triple-digit hourly swings on the Dow, while the Nasdaq nearly pulled off its own 100-point intraday swing from high to low.

The small-caps slipped a point on Tuesday’s crazy shakedown, which was a slightly bullish clue. The VIX tested 25 at the start of the week but finished lower before Tuesday’s peak at 25.20 and close below this level.

These were the two most important clues I focused on heading into Wednesday’s Fed announcement. Wall Street anxiously awaited the Fed’s updated policy but seemed “shocked” and “relieved” following the mid-week announcement to stand pat on interest rates.

The Fed added fuel to the bulls’ fire following their decision to maintain interest rates. Janet Yellen is carrying the Ben Bernanke torch like a gold medalist at the Olympics, as she soothed Wall Street and reminded everyone to be “patient.” The indexes did get a little shaky while she was speaking, but, by the close, Wall Street was gelling.

Thursday’s action was even better. Futures were up huge ahead of the open, which was also a decent sign of a follow-through rally. I really wanted to see the bulls hold fresh support, and they did more than that after clearing several layers of resistance across the board.

I was banking on a higher Friday, as I mentioned last week that the session was usually one in which the bulls roamed.

The Dow closed lower last Monday to extend the bears’ streak to three-straight wins, which was another unwanted curveball. However, Friday’s continued run to previous record highs was the fourth Friday win in five weeks for the blue-chips.

The Dow came into December at 17,828, the S&P 500 started at 2,067, the Nasdaq was at 4,791 and the Russell 2000 was 1,173.

So far, the December lows have been Dow 17,067 and 17,069 on back-to-back days last week. The S&P 500 kissed 1,972 and 1,973 last week, while the Nasdaq danced with 4,547 and 4,550. The Russell 2000 traded down to 1,138 and 1,134. These numbers were perfect “double-bottoms” in today’s fast-paced and volatile market.

The Dow and Nasdaq are still slightly lower for the month, while the S&P is showing a slight gain. The Russell is up 2%, and I said that it could lead the way higher from mid-December and into January.

The Financial Select Spiders (XLF, $24.68, up $0.02) tested a low of $23.68 and $23.75 before zooming 2% on the Fed’s comments and reclaiming $24. This level was breached on Monday before the mid-week recovery and Friday’s push to $25. The recent 52-week high is from Dec. 8.

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While headlines can be attributed to the market’s volatility and bullish rebound, I was relying on both technical levels and bullish news to confirm that a bottom would form.

The market gods blessed those who did their homework and bought into weakness, but nothing is a given anymore. The wild card now is Russia and how Putin plays the hand he is being dealt with a collapsing currency and lower oil prices.

Political headlines here at home remain the joker heading into 2015. President Obama used his executive powers and made a deal with Cuba before the zombies packed up for the Christmas and New Year holiday. Hopefully, by the time Washington gets back from its vacation, the bulls will be rocking and there will be no major curveballs. February is always a tricky month to trade, but most government officials take extended vacations deep into January.

I will worry about those events when the time comes, but, for now, it is time to enjoy the holidays ourselves.

The Santa Claus rally officially starts the day after Christmas, or this coming Friday, but the day before Christmas is usually bullish as well. I wouldn’t be surprised to see the possibility of a more normal trading range into Wednesday with less volatility. I mentioned that the talking heads would get the Santa rally confused with the facts and what they were calling a snap-back rally — just like they do every year. Hopefully, new highs are set by year-end and into January, as some slick-talking pros were saying to “sell” into last week’s highs.

I would like to thank everyone that has recently signed on and those who are new subscribers, along with continued blessings to those that have traded beside me over the years. This year has been challenging and super rewarding, but the homework has paid off, as the portfolio recommendations provided us stellar market returns.

I promise to do my best and to work even harder in 2015 to provide you with the best double- and triple-digit returns in the business. I also hope everyone takes advantage of the exclusive offers I have been sending you.

If you are a recent and new subscriber, the easiest way to catch up with me, my style and a very quick review of December is to read the past few Monday updates. You will see that I was cautious of the December pullback. The updated 10-year charts are in the Dec. 8 Issue, and they are my most important pieces of art, as they provide a sneak peak at how 2015 might play out — good or bad.

Side Note: Last year, on Dec. 23, the Russell experienced a “whacky” 5% move that was later wiped away from the history books.

The index was at 1,146 and zoomed past 1,200 before “officially” settling that day at 1,157.

Here were my thoughts on Dec. 23, 2013 from my Mid-Market Update:

“The Russell 2000 opened at 1,212.81 and kissed 1,213.49 in the opening minutes before coming back down to earth. The 5% move could have been a rebalancing act and either marks the high for the year or is one hell of a clue this level will be triggered in January.”

Here is my chart work from the week after:

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The index has struggled with the 1,200 level all year following a high of 1,182 in January, 1,195 in March, 1,213 in early July, 1,183 in September and 1,191 in November. For 2014, the Russell 2000 is higher by 3% after coming into the year at 1,163.

I doubt there will be another “fat-finger” incident or one of these unexplainable events this week, but I wanted to bring this to your attention. However, given the current volatility, nothing can be ruled out.

I do believe the market could have another 5% move to the upside into mid- to late-January as long as support stabilizes.

Ahead of the open, futures look like this: Dow (+34); S&P 500 (+2.5); Nasdaq 100 (+1.5).

Momentum Options Play List

Closed Momentum Options Trades for 2014: 97-61 (61%). All trades are dated and time stamped so new subscribers can look at the past history to see how the trades have played out.

Do not risk more than 5% of your trading account on any one trade but do try to take all of the trades. Please remember, all “Exit Targets” and “Stop Targets” are targets. You should not have any “Hard Stops” entered to close any trades or “Exit Orders” in your brokerage account unless I list one. I will send out a “Profit Alert” or “New Trade” if I want you to close a position or if a new trade comes out. Otherwise, follow instructions at all times in the 9 a.m. and 12 p.m. – 1 p.m. updates. Also, I will usually give you a heads-up if I think I’m going to send an email outside of these time frames.

All prices given in this update are current as of 8:30 a.m. EST.

Every new Momentum Options recommendation is listed with the price at which I entered my own position. If the price is slightly different than my recommended entry or exit price when you receive the alert, don’t let that keep you from getting into or out of a trade. Occasionally, you might even get a better “fill” price than what is posted in the Open Trades and Closed Trades.

 

Juniper Networks (JNPR, $22.48, up $0.58)

JNPR January 23 calls (JNPR150117C00023000, $0.42, up $0.15)

Entry Price: $0.36 (12/19/2014)

Exit Target: $0.75

Return: 17%

Stop Target: None

 

JNPR April 24 calls (JNPR150417C00024000, $0.87, up $0.19)

Entry Price: $0.81 (12/19/2014)

Exit Target: $1.60

Return: 7%

Stop Target: None

Action: Shares came close to clearing $22.50 after going out at their session high. A close above this level should get $23.25 and the 200-day moving average in play. Support is fresh at $22 and the 100-day moving average.

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Boston Scientific (BSX, $13.15, down $0.11)

BSX February 14 calls (BSX150220C00014000, $0.47, up $0.02)

Entry Price: $0.45 (12/19/2014)

Exit Target: $0.90

Return: 4%

Stop Target: None

Action: Shares could make a run to $13.75 over the near-term. A close above this level should lead to a run past $14 and fresh 52-week peaks. Support is at $13 followed by $12.85-$12.80 and the 50- and 200-day moving averages.

The February call options expire in two months. This gives the trade plenty of time for a run past $15.

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Fortinet (FTNT, $30.10, up $0.47)

FTNT March 32 calls (FTNT150320C00032000, $1.30, up $0.15)

Entry Price: $1.00 (12/18/2014)

Exit Target: $2.00

Return: 30%

Stop Target: None

Action: Shares reached another 52-week high of $30.19 on Friday. My new price target is calling for shares to make a run at $33-$34 as long as $30 holds on a continued daily basis. Support is at $29.50-$28.50 on a pullback.

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American Express (AXP, $92.90, down $0.27)

AXP January 95 calls (AXP150117C00095000, $1.10, down $0.10)

Entry Price: $0.60 (12/15/2014)

Exit Target: $1.50 (Limit Order on Half)

Return: 83%

Stop Target: $0.90 (Stop Limit)

Action: Keep the limit order to close half of the trade at $1.50 in place.

Friday’s high touched $93.91, and resistance at $94-$95 held. Near-term support is at $92, followed by $90. A “golden cross” is forming, with the 50-day moving average in route to clear the 200-day moving average. This is a bullish sign, which is why I feel that shares could challenge $100 during the first quarter of 2015. A close below $88 would be bearish, and the stop limit of $0.90 will likely trigger on a pullback.

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Marvell Technology (MRVL, $14.18, down $0.01)

MRVL January 15 calls (MRVL150117C00015000, $0.20, down $0.05)

Entry Price: $0.35 (12/11/2014)

Exit Target: $0.70

Return: -43%

Stop Target: None

 

MRVL February 15 calls (MRVL150220C00015000, $0.45, flat)

Entry Price: $0.55 (12/11/2014)

Exit Target: $1.10

Return: -18%

Stop Target: None

Action: Shares closed just below their 200-day moving average to end the week. The next wave of resistance is at $14.50-$14.75, and a close above the latter would be super bullish. Support is at $14-$13.75. I plan to stick with the trade as long as $13.50 holds.

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Pfizer (PFE, $31.94, down $0.03)

PFE February 33 calls (PFE150220C00033000, $0.45, down $0.05)

Entry Price: $0.57 (12/8/2014)

Exit Target: $1.15

Return: -12%

Stop Target: None

 

PFE March 33 calls (PFE150320C00033000, $0.60, down $0.05)

Entry Price: $0.68 (12/8/2014)

Exit Target: $1.40

Return: -12%

Stop Target: None

Action: A close above $32 should lead to a continued breakout to $33-$35. The 52-week high is at $32.96. Support is at $31-$30.50. A close below $30-$29.50 would be bearish.

You can view the chart work on PFE in the Dec. 9 Pre-Market Update. You can also read about PFE’s fundamentals in the Dec. 9 Mid-Market Update.

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iShares Russell 2000 (IWM, $118.90, up $0.27)

IWM January 121 calls (IWM150117C00121000, $1.10, up $0.05)

Entry Price: $0.90 (12/5/2014)

Exit Target: $1.80

Return: 22%

Stop Target: None

Action: Resistance at $118.85 was cleared for a run to $120 and the 52-week high of $121. Support is fresh at $118-$117.50. I will stick with the trade as long as these levels hold, but I have not listed a stop target due to the volatility.

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PowerShares QQQ (QQQ, $104.32, up $0.46)

QQQ January 107 calls (QQQ150117C00107000, $0.55, flat)

Entry Price: $0.98 (12/5/2014)

Exit Target: $2.00

Return: -44%

Stop Target: None

Action: Resistance is at $105, and continued higher closes above this level would be bullish. Support is at $103.50-$102. I will likely close the trade on a drop below $100-$99.50. I have said that the QQQs should test $110 during the first quart of 2015, but the major moving averages will need to hold over the next two weeks.

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JDS Uniphase (JDSU, $13.93, down $0.08)

JDSU March 14 calls (JDSU150320C00014000, $1.05, flat)

Entry Price: $0.70 (12/3/2014)

Exit Target: $1.40

Return: 50%

Stop Target: $0.80 (Stop Limit)

Action: Shares tested $14.25 before closing below $14 on Friday. The 52-week peak is at $14.99. A close above $14.25 would be bullish. Near-term support is at $13.75, and a drop below this level could lead to $13.50-$13.25.

You can read my full update on JDSU in the Dec. 3 Alert.

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Flextronics (FLEX, $11.02, up $0.07)

FLEX January 11 calls (FLEX150117C00011000, $0.35, flat)

Entry Price: $0.68 (9/5/2014)

Exit Target: $1.25

Return: -48%

Stop Target: None

Action: Shares held $11 on Friday and are on track to challenge $11.25-$11.50 as long as this level holds. Support is at $10.75-$10.50. A drop below $10.50 and the 100-day and 50-day moving averages could force me out of the trade.

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Holiday Savings Event: The local stores have their holiday decorations up and I’m beginning to think about gifts, so today I wanted to invite you to join me for a special Holiday Savings Event that I’m throwing for a limited time only. Renew your Momentum Options service today and save $200. It doesn’t matter when your subscription expires because I’ll just extend your current membership. Click here now to take advantage of this savings opportunity!

Trade on!

Rick Rouse
Editor and Chief Options Strategist
Momentum Options